Informing Decisions in Healthcare - Atlantic KET Med · •Choosing Interventions that are Cost...

Health Economics

Informing Decisions in Healthcare

Ian JacobHealth Economics & Outcomes Research Ltd

Webinar

8th October 2019

Aim for the Workshop

• Introduce the key concepts of health economics

• Consider practical, real world examples

• Questions & Answers

What is Economics About?

ScarcityChoice

Budget Constraint

Is health care economically important?

• Health expenditure in the USA:• passed $1,000,000,000,000 (one trillion) by 1997• now accounts for just over 15% of USA GDP• is forecast to account for US$3.6 trillion - nearly one fifth of all US

economic activity - by 2014• will plausibly reach 33% of GDP by 2050

• Health expenditure in the UK:• comprises 17% of all Government spending• is a major consideration in fiscal management of the economy

• In every developed economy:• health care is a major component of spending, investment and

employment • the economic performance of the health care system is crucially linked

to the overall economic well-being of a country and its citizens

Why do we need health economics?

Health economics is needed to inform decision-makers on which products to support in order to maximise the health

of the whole population

Healthcare budgets

Costs of new drugs, diagnostics,

devicesThe problem:

Key Concepts in Health Economics

Judging the use of health care resources

• Efficiency is the allocation of scarce resources that maximises the achievement of aims

• Effectiveness is the extent to which health care services actually improve health (a Regulatory hurdle as well as a Health Economic challenge)

• Equity is fairness in the sharing of health care resources between people.

• Ethics are a code of widely-held normative criteria about the provision of health care

The Scope of Health Economics

A. Meaning, measurement

and valuation of health

B. Influences on health and

the demand for health

G. Planning, budgeting,

monitoring & regulation

H. Evaluation at the

whole system level

C. Demand for healthcare

D. Supply of healthcare

F.

Economic

evaluation

E. Market

equilibrium

Principles of Economic Evaluation

Costs (£)

Benefits (£)

How do we determine value for money? 4

Opportunity Cost – and perspective• The production and consumption of health care incurs real, human

costs, as well as creating real, human benefits.

• Since resources are scarce relative to needs, the use of resources in one way prevents their use in other ways.

• The opportunity cost of investing in a healthcare intervention is best measured by the health benefits e.g. quality adjusted life years (QALYs) gained that could have been achieved had the money been spent on the next best alternative intervention or healthcare programme.

• The study perspective (societal, patient, etc) is critical since it determines which costs and effects to include in the evaluation.

Would you prefer to receive £1000 now or £1000 in 10 years?

Most people instinctively prefer to have the £1000 now.

£1000 will be worth more in 10 years time (due to inflation or investment returns)

Discounting transforms all costs into a present value

Cost-effectiveness or budget impact analyses?

• Determines whether an intervention is good value for money

• Compares the value of one treatment versus another

• Is it worth paying more for a new treatment?

Cost-Effectiveness

• Determine whether an intervention is affordable

• Calculates the additional expenditure required (or indeed money saved)

Budget Impact

8

Budget impact analyses & Perspective

How are choices made?

Choice?

Option A

Option B

Costs A

Costs B

Benefits A

Benefits B

Measuring Health GainQuality Adjusted Life Year - QALY

• The QALY is a generic measure of disease burden, including both the quality and the quantity of life lived.

• The QALY is used in economic evaluation to assess the value for money of medical interventions.

• One QALY equates to one year in perfect health.

One QALY equates to one year in perfect health

Measuring Costs in Health Economic Evaluation

Publicly available sources of cost data

• Hospital costsReference costs (HRG based)

• Community costsReference costs (very limited services)

Personal Social Services Research Unit (PSSRU)

• Primary carePSSRU

• Pharmaceuticals

British National Formulary

• Literature/Google

HRGs and Reference Costs• Inpatients (EL, NEL, DC)

• Critical care

• Outpatients and A&E

• Radiotherapy and chemotherapy

• Renal dialysis, spinal injuries, BMT, rehab, maternity

• Audiology, physiotherapy, OT, ST, dietetics, chiropody

• And many, many more…..

• Minor alterations every year, and a major overhaul has just been completed (HRG v3.5 to HRG v4)

Elective inpatients

Code Description Activity

NationalAverage

Unit Cost

LowerQuartile

Unit Cost

UpperQuartile

Unit Cost

No.ofBed Days

AverageLength of Stay

Days

No. Data Submissions

DZ01Z Lung Transplant 44 £39,757 £19,516 £68,062 506 11.50 5

DZ02A

Complex Thoracic Procedures with Major CC

467 £9,176 £7,238 £10,780 5,645 12.09 39

DZ02B

Complex Thoracic Procedures with CC

3,093 £6,895 £5,495 £8,009 22,922 7.41 70

Day case chemotherapy

Code Description ActivityNational Average

Unit Cost

Lower Quartile Unit Cost

Upper Quartile Unit Cost

No. Data Submissions

SB11ZDeliver exclusively Oral Chemotherapy

14,862 £201 £139 £272 60

SB12Z

Deliver simple Parenteral Chemotherapy at first attendance

47,346 £212 £116 £280 61

SB13Z

Deliver more complex Parenteral Chemotherapy at first attendance

18,604 £237 £124 £295 62

SB14Z

Deliver complex Chemotherapy, including prolonged infusionaltreatment at first attendance

80,426 £307 £211 £406 63

SB15ZDeliver subsequent elements of a chemotherapy cycle

60,602 £220 £138 £277 62

Consultant Led: Follow up Attendance Non-Admitted Face to Face

Code Description ActivityNational Average

Unit Cost

Lower Quartile Unit Cost

Upper Quartile Unit Cost

No. Data Submissions

100 General Surgery 1,304,236 £89 £67 £104 167

101 Urology 989,464 £82 £61 £95 165

102 Transplantation Surgery 59,876 £289 £184 £381 20

103 Breast Surgery 274,293 £86 £63 £100 79

104 Colorectal Surgery 97,588 £91 £72 £106 51

105Hepatobiliary & Pancreatic Surgery

14,220 £119 £78 £190 11

106 Upper Gastrointestinal Surgery 34,497 £88 £71 £111 30

Sources of non-UK cost data• Choosing Interventions that are Cost Effective (WHO-CHOICE)

- Costs for hospital inpatient and outpatient split by type of facility

- Other programme costs; salaries, transportation, water/electricity, buildings, etc.

- Every country in the world allocated to one of six regions and five mortality strata

• ‘Unit costs of Health Care Inputs in Low and Middle Income Regions’

- Based around WHO-CHOICE data but gives additional explanations

WHO-CHOICE costs

Cost per bed day by hospital level

India Uganda Egypt UK

Int$ 2000

LCU 2000

Int$ 2000

LCU 2000

Int$ 2000

LCU 2000

Int$ 2000

LCU 2000

Primary 15 214 11 4,741 29 40 126 72

Secondary 19 279 14 6,185 38 52 164 107

Tertiary 26 382 19 8,448 51 71 224 146

Cost per visit

Health centre 7 102 6 2,759 7 10 30 20

Where to find them all

• Reference costs• http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/Public

ationsPolicyAndGuidance/DH_098945

• PSSRU• http://www.pssru.ac.uk/uc/uc2008contents.htm

• British National Formulary• http://www.bnf.org/bnf/

• WHO-CHOICE• http://www.who.int/choice/costs/en/

• ‘Unit costs of Health Care Inputs in Low and Middle Income Regions’• http://www.dcp2.org/file/24/wp9.pdf

Measuring and valuing health gain

The measurement of health gain• Health can be regarded as the product of the level of health

and the length of time that it is experienced, in other words a measure of fully healthy time.

• If the level of health is quantified using the concept of HRQOL (Health related Quality of Life), we can consider variations in HRQOL over time, representing the prognoses with and without treatment.

• The most commonly used measure that follows this is the Quality Adjusted Life Year (QALY), calculated by multiplying the amount of time in a particular health state by the quality of life during that time, summing over all time periods and standardising to a year.

The measurement of health gain• We can define and measure our state of health using the

concept of Health Related Quality of Life (HRQOL)

• If we plot HRQOL over time we can - consider the prognoses with and without treatment- or compare the benefit of treatment A to treatment B

• The most commonly used measure of health gain is the

Quality Adjusted Life Year (QALY)

One QALY equates to one year in perfect health

The value of life

• It is possible to place monetary values on life itself, focussing on the value of changing the probability of deaths occurring. This has some applications in healthcare but is mainly used in areas of road safety and the environment.

• There are two main approaches:

- human capital

- statistical value of life

Dimensions and levels within a health measurement instrument

PAIN

MODERATE SEVERE

STRONGSLIGHT

NONE

DISABILITY

MAJOR

COMPLETEMINOR

NONE

EQ-5D• Indirect

preference-based method to elicit health state utility values

Measuring the health gainQ

UA

LITY

OF

LIFE

TIMEONSET OF

ILLNESS

1

0

INTERVENTION

= Health gain

Prognosis with intervention

Prognosis without intervention

Measuring gains from different types of intervention

TIME

IMPROVED SURVIVAL (INCREASED LENGTH OF LIFE) ONLY

QU

ALI

TY O

F LI

FE

Measuring gains from different types of intervention

TIME

IMPROVED QUALITY OF LIFE ONLY

QU

ALI

TY O

F LI

FE

Measuring gains from different types of intervention

TIME

IMPROVED SURVIVAL AND IMPROVED QUALITY OF LIFE

QU

ALI

TY O

F LI

FE

Measuring gains from different types of intervention

TIME

IMPROVED SURVIVAL AT EXPENSE OF DECREASED QUALITY OF LIFE

QU

ALI

TY O

F LI

FE

Measuring QALY gains:

QU

ALI

TY O

F LI

FE

TIME

0.6

0

1

0.4

t+12t+10t t+2

QALY without = 2x0.6 +8x0.4 = 4.4QALY with = 1x12 = 12QALY gain = 12 – 4.4 = 7.6

QALY gain = 0.4x2+ 0.6x8+ 1.0x2

= 7.6

Healthcare Market Models and Economic Evaluation

Households

Two-party health care market model

Health careproviders

Treatment

Direct out of pocket payment

Third-party health care market model

Health careproviders

Treatment

Households

Third-partypayer

Insurance premiums

Reimbursement

Health care financing framework

Integration between third party payers and health care providers

Reimbursement– Retrospective– Prospective

Vertical integration

Separate entities

Selective contracting

– Private insurance providers– Government authorities– Social insurance funds

Health careproviders

Treatment

Third-partypayer

Paying for health care– User charges – Private insurance premiums – Social health insurance contributions– Taxation

Direct out of pocket payment

Households

Modelling-based economic evaluation

• Many sources of data which have to be linked together - Clinical evidence of effect- Progression of disease and events - Quality of life- Resource use and costs

• Uncertainty within the numerical information

• Established methodologies including- Decision Trees- Markov models - to model dynamic, real-world processes

Cost per QALY gained}

Need to Combine evidence

Clinical effect

Disease Progression

QALY

Costs

Ran

do

m

s

amp

ling

Asymptomatic Progressive

Dead

Treatment A

Asymptomatic Progressive

Dead

Treatment B

Model Structure

Treatment A

QALY Cost

Treatment B

QALY Cost

1 £10,000

2 £30,000

0 £ 5,000

3 £20,000

2 £15,000

4 £40,000

1 £10,000

3 £30,000

Surgery

Drug

Survive

Die

Cured

Not cured

Counsel

Drug 2

Not cured

Cured

Not cured

Cured

0.05

0.95

0.3

0.7

0.8

0.2

0.5

0.5

0 QALYs

15 QALYs

0.5 QALYs

13 QALYs

1.5 QALYs

10 QALYs

1 QALY

DECISIONTREE

Markov cycles

SICKWELL

SICKWELL

DEAD

DEAD

SICKWELL DEAD

SICKWELL DEAD

SICKWELL DEAD

CYCLE 1

CYCLE 2

CYCLE 3

Final state distribution

Initial statedistribution

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 1 2 3 4 5 6 7 8 9 10 11 12

Life years

Qu

aili

ty o

f L

ife A

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 1 2 3 4 5 6 7 8 9 10 11 12

Life years

Qu

aili

ty o

f L

ife

B

Is it worthwhile? What is an improvement in health?

• Gain in life expectancy

• Improvement in quality of life

Does it improve health?

Quality adjusted life years (QALYs)A = 4.2 QALYsB = 7.7 QALYs

Health Gain = 3.5 QALYs

But what about costs?

QALYs gained

Cost

2

£20,000

£10,000 per QALY

£40,000

£40,000 per QALY

1

£20,000 per QALYA

B

THRESHOLD

£20,000

2 QALYs=

= 2 –£20,000

£20,000

Is it cost-effective?Is it worthwhile?Is the ICER less than the cost-effectiveness threshold?

If the cost-effectiveness threshold is £20,000 per QALY, B is cost-effective

Is net benefit positive?

Net health benefit = QALYs gained – QALYs lost

Net money benefit = £ value of QALYs gained – additional costs

= 2 x £20,000 – £20,000

Additional cost

QALYs gained ICER = = £10,000 per QALY

= 2 – 1 = 1 QALY

= £20,000 = 1 QALY

= 2 –£20,000

£20,000

Should a technology be adopted?

Treatment A

QALY Cost

Treatment B

QALY Cost

2 £30,000

3 £20,000

4 £40,000

1 £10,000

0 £ 5,000

2 £15,000

1 £10,000

3 £30,000

Additional cost

QALYs gained ICER =

£20,000

2 QALYs = = £10,000 per QALY

Is the ICER less than the cost-effectiveness threshold?

£10,000 per QALY < £20,000 per QALY, B is cost-effective

Is net benefit positive?

Net health benefit = QALYs gained – QALYs lost

= 2 – 1 = 1 QALY

Net money benefit = £ value of QALYs gained – additional costs

= 2 x £20,000 – £20,000 = £20,000 = 1 QALY

Questions & Discussion

Ian JacobSenior Manager - Health EconomicsHealth Economics & Outcomes Research Ltd

https://heor.co.uk

ian.jacob@heor.co.uk

+44 (0) 2920 399146

END